WhiteHorse Finance (WHF) risk factors, 2026 10-K

Risks Relating to Our Business and Structure

1. 01The constraints imposed on us as a business development company and RIC may hinder the achievement of our investment objective
2. 02We depend upon key personnel of H.I.G. Capital and its affiliates
3. 03If our Investment Adviser is unable to manage our investments effectively, we may be unable to achieve our investment objective63% rewritten
4. 04We may not replicate the historical results achieved by other entities managed or sponsored by members of the Investment Committee or by H.I.G. Capital or its affiliates
5. 05The highly competitive market for investment opportunities in which we operate may limit our investment opportunities
6. 06We have elected to be treated as a RIC and intend to qualify annually for such treatment. If we are unable to qualify as a RIC, we will be subject to corporate-level income tax
7. 07Our returns will be reduced by any corporate income tax that our subsidiaries pay
8. 08We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
9. 09We may be exposed to higher risks with respect to our investments that include OID or PIK interest
10. 10PIK interest payments we receive will increase our assets under management and, as a result, will increase the amount of base management fees payable by us to our Investment Adviser
11. 11Regulations governing our operation as a business development company, including those related to the issuance of senior securities, will affect our ability to, and the way in which we, raise additional debt or equity capital
12. 12Any failure on our part to maintain our status as a business development company would reduce our operating flexibility
13. 13The SBCAA allows us to incur additional leverage, which may increase the risk of investing with us
14. 14Our business and the businesses of our portfolio companies are dependent on bank relationships and concerns associated with the banking system may adversely impact us72% rewritten
15. 15We intend to continue to finance our investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us68% rewritten
16. 16(2) Assumes $806.2 million in total assets, $519.6 million in debt outstanding and $259.8 million in net assets as of December 31, 2025, and an average cost of funds of 5.56%, which would be our weighted average borrowing cost assuming 150% asset coverage as of December 31, 202562% rewritten
17. 17Because we expect to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms, or at all
18. 18Since we are using debt to finance our investments, and we may use additional debt or preferred stock financing going forward, changes in interest rates may affect our cost of capital, net investment income, value of our common stock and our rate of return on invested capital37% rewritten
19. 19We are exposed to risks associated with changes in interest rates, including increasing the difficulty for portfolio companies paying loans35% rewritten
20. 20Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies
21. 21We may expose ourselves to risks by engaging in hedging transactions
22. 22Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
23. 23There are significant potential conflicts of interest that could affect our investment returns
24. 24There are conflicts related to obligations the Investment Committee, our Investment Adviser or its affiliates have to other clients
25. 25The Investment Committee, our Investment Adviser or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion
26. 26Our incentive fee structure may create incentives for our Investment Adviser that are not fully aligned with the interests of our stockholders and may induce our Investment Adviser to make speculative investments52% rewritten
27. 27fees and our expenses (including those related to leverage) remain appropriate. As a result of this arrangement, our Investment Adviser or its affiliates may from time to time have interests that differ from those of our stockholders, giving rise to a conflictnew
28. 28The valuation process for certain of our portfolio holdings creates a conflict of interest
29. 29We have conflicts related to other arrangements with our Investment Adviser or its affiliates
30. 30Our Investment Adviser may be paid incentive compensation even if we incur a net loss, and we cannot recover any portion of the incentive fee previously paid
31. 31Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us
32. 32Our portfolio investments will be recorded at fair value as determined in good faith by the Investment Adviser as the Company’s valuation designee, subject to the oversight of our board of directors. As a result, there will be uncertainty as to the value of our portfolio investments
33. 33be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securitiesnew
34. 34The lack of liquidity in our investments may adversely affect our business
35. 35Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our NAV through increased net unrealized depreciation
36. 36We may experience fluctuations in our quarterly results
37. 37Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
38. 38Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval
39. 39Provisions of the DGCL, our certificate of incorporation and bylaws, and our various debt instruments could deter takeover attempts and have an adverse effect on the price of our common stock and the rights of our common stockholders
40. 40Our Investment Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
41. 41Our Administrator can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
42. 42Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock
43. 43Our Investment Adviser’s liability is limited under the Investment Advisory Agreement, and we have agreed to indemnify our Investment Adviser against certain liabilities, which may lead our Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account

Risks Relating to our Investments

1. 44Our investments may be risky, and you could lose all or part of your investment
2. 45We are subject to risks associated with lower middle market companies
3. 46We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited by the 1940 Act with respect to the proportion of our assets that may be invested in securities of a single issuer
4. 47Our portfolio may be concentrated in a limited number of portfolio companies and industries, which would subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry
5. 48Our investments in the health care sector face considerable uncertainties including substantial regulatory challenges
6. 49We may hold the debt securities and loans of leveraged companies that may, due to the significant volatility of such companies, enter into bankruptcy proceedings
7. 50Our portfolio companies may experience financial distress, and our investments in such portfolio companies if they are restructured
8. 51Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interest rates may make it more difficult for portfolio companies to make periodic payments on their loans
9. 52Economic recessions or downturns could impair our portfolio companies and harm our operating results
10. 53We may be subject to risks associated with syndicated loans
11. 54We may not realize gains from our equity investments
12. 55Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio, and our ability to make follow-on investments in certain portfolio companies may be restricted
13. 56​• attempt to preserve or enhance the value of our investment
14. 57Because we generally do not hold controlling equity interests in our portfolio companies, we will not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
15. 58Defaults by our portfolio companies will harm our operating results
16. 59Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
17. 60​• waivers of past defaults under collateral documents
18. 61Our portfolio companies may prepay loans, which prepayment may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
19. 62The disposition of our investments may result in contingent liabilities
20. 63Investments in securities of foreign companies, if any, may involve significant risks in addition to the risks inherent in U.S. investments
21. 64We may invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, and investments in which we have a non-controlling interest may involve risks specific to third-party management of those investments

Risks Relating to the Credit Facility

1. 65Our interests in WhiteHorse Credit are subordinated
2. 66Credit or market value deterioration in our portfolio companies will harm our operating results
3. 67We may not receive cash from WhiteHorse Credit
4. 68We may experience an event of default and acceleration under the Credit Facility, which would have a material adverse effect on us
5. 69The ability of WhiteHorse Credit to purchase and sell investments is limited
6. 70We may lose the ability to manage WhiteHorse Credit even if we continue to own its equity

Risks Relating to our Other Indebtedness

1. 71The Private Notes and the Public Notes are unsecured and therefore effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
2. 72The Private Notes and the Public Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 73We are subject to the risk of an event of default and acceleration under our unsecured debt agreements, which would have a material adverse effect on us36% rewritten
4. 74Upon the occurrence of an event of default, our lenders may exercise customary remedies, including declaring all amounts immediately due and payable. Any of these developments would have a material adverse effect on our business, financial condition and results of operationsnew
5. 75The indenture for the 4.000% 2026 Notes contains limited protection for holders of the 4.000% 2026 Notes
6. 76In addition, the indenture does not require us to offer to purchase the 4.000% 2026 Notes in connection with a change of control or any other event, except in limited circumstances85% rewritten
7. 77of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity, except in limited circumstances as set forth in the indenture and as required under the 1940 Actnew
8. 78The indenture for the 7.875% 2028 Notes contains limited protection for holders of the 7.875% 2028 Notes
9. 79In addition, the indenture does not require us to offer to purchase the 7.875% 2028 Notes in connection with a change of control
10. 80We may not be able to prepay the Private Notes upon a change in control
11. 81We may choose to prepay the Private Notes and the Public Notes when prevailing interest rates are relatively low48% rewritten
12. 82the date fixed for redemption thereof, at a redemption price of $25 per note plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to the date fixed for redemptionnew
13. 83If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Private Notes and the Public Notes
14. 84FATCA withholding may apply to payments to certain foreign entities
15. 85The trading market or market value of any publicly issued debt securities may fluctuate
16. 86​• market rates of interest higher or lower than rates borne by the debt securities
17. 87Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue
18. 88Our credit ratings may not reflect all risks of an investment in our debt securities

Risks Relating to an Investment in our Common Stock

1. 89typically unable to do as a result of restrictions that, absent stockholder approval, apply to business development companies under the 1940 Actnew
2. 90Investing in our common stock may involve an above average degree of risk
3. 91Shares of closed-end investment companies, including business development companies, often trade at a discount to their NAV
4. 92There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital
5. 93Our stockholders could experience dilution in their ownership percentage if they do not participate in our distribution reinvestment plan
6. 94Our stockholders may receive shares of our common stock as dividends, which could result in adverse tax consequences to them
7. 95Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
8. 96Our stock repurchase program could affect the price of our common stock and increase volatility and could be suspended or terminated at any time, which could result in a decrease in the trading price of our common stocknew
9. 97If we issue preferred stock, debt securities or convertible debt securities, the NAV and market value of our common stock may become more volatile
10. 98Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our NAV per share, then you will experience an immediate dilution of the aggregate NAV of your shares

Risks Relating to Our Offerings

1. 99The market price of our securities may fluctuate significantly
2. 100We are a holding company and depend on payments from our subsidiaries in order to make payments on any debt securities that we may issue as well as to pay dividends on our common stock. Any debt securities that we issue will be structurally subordinated to the obligations of our subsidiaries
3. 101Holders of preferred stock that we issue, if any, would have the right to elect members of the board of directors and have class voting rights on certain matters
4. 102Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability
5. 103Changes to U.S. tariff and import/export regulations may affect our portfolio companies, and may negatively impact our business, results of operations or financial condition31% rewritten
6. 104Trade negotiations and related government actions may create regulatory uncertainty for our portfolio companies and our investment strategies and adversely affect the profitability of our portfolio companiesnew
7. 105We are currently operating in a period of capital markets disruptions and economic uncertainty which could impair our portfolio companies’ financial positions and operating results and affect the industries in which we invest and, in turn, harm our operating results
8. 106Periods of market volatility have occurred and may in the future occur in response to pandemics or other events that are beyond our control. These types of events have adversely affected and could continue to adversely affect our operating results and the operating results of our portfolio companies
9. 107We are highly dependent on information systems and systems failures or interruption could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends and other distributions
10. 108We and our Investment Adviser could be the target of litigation
11. 109We are subject to risks related to corporate social responsibility
12. 110Continued uncertainty surrounding geopolitical and economic conditions could have a material adverse effect on our business, results of operations and financial condition48% rewritten
13. 111ongoing conflicts’ additional adverse effects on existing macroeconomic conditions, currency exchange rates, and financial markets, all of which may affect our business operations or the business operations of our portfolio companiesnew
14. 112Continuing uncertainties and challenging conditions in the global economy and in the countries in which we operate, or may in the future operate, may adversely impact our business, financial condition and results of operations
15. 113Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations
16. 114We are subject to risks associated with artificial intelligence and machine learning technology